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Prediction: Bitcoin will reach $1 million due to this little-known phenomenon
Action will drive more action.
Day to day, Bitcoin‘S (Bitcoin -0.22%) its unique characteristics, which make it different from any other asset in the world, are becoming increasingly recognized and understood by investors. The recent approval of Bitcoin spot exchange-traded funds (ETFs) will amplify this understanding, as these ETFs simplify the process for investors to gain exposure to Bitcoin.
While the approval of Spot Bitcoin ETF has been widely celebrated as a stamp of unofficial legitimacy, signaling that Bitcoin is here to stay, there is another crucial dimension to consider. Once this is fully understood, it will become apparent that Bitcoin has the potential to reach the coveted $1 million price point.
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Understand the current landscape
The approval of Bitcoin spot ETFs revolutionizes how the average investor, or retail investor, can add Bitcoin exposure to their portfolios. Simply by purchasing shares of one of these ETFs through their intermediationInvestors can now bypass the complexities of navigating cryptocurrency exchanges and managing digital wallets.
This development has the potential to significantly increase demand for Bitcoin’s limited and dwindling supply. However, as transformative as this increased access is for retail investors, it will pale in comparison to the wave of demand anticipated by financial markets. institutional investors enter the market.
Before diving into the numbers, it is essential to understand who institutional investors are. For a long time I heard Bitcoin enthusiasts say that institutions were coming, but I never fully understood what that meant. Institutional investors are organizations that invest money on behalf of their clients. These include, among others, pension funds, pension plans, sovereign wealth funds and hedge funds. Essentially, they manage and invest large sums of money.
Prior to the approval of Bitcoin spot ETFs, institutions were prohibited or hesitant to enter the Bitcoin market due to the complexities associated with owning digital assets. However, with the advent of these ETFs, institutions can now easily incorporate Bitcoin into their large portfolios, opening the door for a significant influx of institutional capital into the Bitcoin market.
Time to do some numbers
But what impact will these institutions have? As of May 15, approximately 700 professional investment firms are estimated to own approximately $5 billion of these Bitcoin spot ETFs. Leading the way is Millennium Management, an investment company that manages over $64 billion, of which $1.8 billion is tied to Bitcoin ETFs, approximately 3% of its total portfolio. But the list goes on and includes the likes of Morgan Stanley (the sixth largest bank in the United States), Bracebridge Capital (a hedge fund that manages investments for Yale and Princeton), and even the State of Wisconsin Investment Board.
However, as it stands, retail investors are the primary owners of spot Bitcoin ETFs. Reports suggest that around 10% of all ETF-related assets come from institutions. But this number is growing and will continue to do so.
The influx of institutions into the Bitcoin market will likely be gradual, as they typically engage extensively due diligence before making assignments. Unlike retail investors, who can quickly enter the market by purchasing shares of an ETF, institutions often take time to research Bitcoin’s impact on their portfolios before making small allocations.
However, after conducting their research, I think they will probably all come to the same conclusion: Bitcoin’s inherent characteristics make it a necessity in wallets. Eventually, widespread adoption among institutional investors will occur, leading to an influx of tsunamis of capital.
There’s no telling exactly how much money, but based on recent studies that argue that a 5% allocation is the ideal amount of exposure, we can begin to estimate the potential impact of institutional investors. With 5% of the $129 trillion in assets under management, Bitcoin’s market capitalization could rise to over $7 trillion and its price above $400,000.
However, some analysts argue that a 5% allocation may be too conservative. In particular, a recent study by ARK Invest suggests that the ideal exposure level should be closer to 19%. If this were to happen, the price of Bitcoin could rise further $1.3 million.
The little-known theory that comes into play
What we are witnessing marks the beginning of a fascinating phenomenon: game theory. In essence, game theory suggests that rational actors, in this case institutional investors, will strategically act in their own best interests based on the actions of others.
As institutions watch their peers reap the benefits of Bitcoin investing, they will inevitably face pressure to join the fray or risk being left behind in the race for returns. This dynamic, driven by the desire to outperform competitors and secure maximum returns, will likely fuel a surge in Bitcoin adoption and investment like never before seen.
While retail investors have played a significant role in Bitcoin’s path thus far and will remain an important group, the entry of institutions represents a paradigm shift. The sheer size and resources at their disposal will not only amplify the dynamics of the Bitcoin market, but will also inject a new level of competition and urgency. As institutions compete for supremacy and seek to exploit Bitcoin’s potential, the game is set to evolve in unanticipated ways and take Bitcoin to new heights.